It’s foreseeable that a contract party will get stressed out when the agreement is broken, but is physical illness caused by the stress the kind of damage that is foreseeable under the rule of Hadley v. Baxendale? That was one of the issues before the English Court of Appeal in a recent decision, Deadman v. Bristol City Council, outlined in a client advisory by Simon Cradick of Cardiff’s Morgan Cole firm. (Free registration required.)

The case involved a manager charged with sexual harassment. Under his terms of employment he was entitled to disciplinary review by a three-person panel. The employer only provided two members of the panel, which found against him. He successfully overturned that decision on the grounds that it violated his employment agreement. The employer then launched a new investigation.

One question in the case was whether the employer’s Procedure for Stopping Harassment in the Workplace became part of the contract. An employer’s announced policy does not necessarily become part of the employment contract, the court noted, but held that the nature of the Harassment Procedure, with its detailed provisions for handling disputes, did. Convening a two-person panel instead of a three-person panel was therefore a breach.

Meanwhile, though, the stress from the original finding and the reinvestigation apparently caused the employee depression and other psychiatric problems. He claimed those as consequential damages of the breach. Assuming that the breach caused the illness, however, the Court found that the damages were too remote. Neither party, said the court, could have anticipated that convening a two-person panel instead of a three-person panel would have resulted in psychiatric injury to the employee. He therefore could not recover for that harm.